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Thursday, August 04, 2016

Mixed Results Amid Choppy Action

Charles Schwab: On the Market

Posted: 8/4/2016 4:15 PM ET

Mixed Results Amid Choppy Action

U.S. equities finished mixed and near the unchanged mark, in what
appeared to be some noticeable caution ahead of tomorrow's July labor
report. Stocks traded in a fairly narrow range during the bumpy session,
despite a recovery in crude oil prices and the Bank of England's move
to cut rates and up its asset purchases. Treasuries were higher
following a surprising rise in jobless claims and a drop in factory
orders, while gold and the U.S. dollar also gained ground.

The Dow Jones Industrial Average (DJIA) ticked 3 points lower to 18,352,
the S&P 500 Index was nearly unchanged at 2,164 and the Nasdaq
Composite increased 7 points (0.1%) to 5,166. In moderate volume, 801
million shares were traded on the NYSE and 1.8 billion shares changed
hands on the Nasdaq. WTI crude oil rose $1.10 to $41.93 per barrel and
wholesale gasoline added $0.02 to $1.37 per gallon, while the Bloomberg
gold spot price increased $3.35 to $1,361.53 per ounce. Elsewhere, the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—was 0.2% higher at 95.75.

Tesla Motors Inc.
(TSLA $231) reported a 2Q loss of $1.06 per share, compared to the
FactSet estimate of a $0.59 per share shortfall, as revenues rose 31.0%
year-over-year (y/y) to $1.6 billion, roughly in line with forecasts.
The electric car maker said production and demand are on track to
support deliveries of about 50,000 new Model S and Model X vehicles
during the second half of 2016. Shares were modestly higher.

Kellogg Co.
(K $82) posted 2Q EPS of $0.91, mostly in line with projections, as
revenues declined 6.5% y/y to $3.3 billion, below the forecasted $3.4
billion. The company raised its full-year earnings outlook and shares
were nicely higher.

Shares of MetLife Inc.
(MET $40) were sharply lower after it reported 2Q profits of $0.83 per
share, including items that may be impacting comparability to the
estimated $1.35, while revenues of $15.2 billion came in well below the
forecasted $17.3 billion.

Jobless claims unexpectedly rise

Weekly initial jobless claims (chart)
rose 3,000 to 269,000 last week, versus the Bloomberg estimate of a dip
to 265,000, with the prior week's figure unrevised at 266,000. The
four-week moving average increased by 3,750 to 260,250, while continuing
claims declined 6,000 to 2,138,000, north of the estimated level of
2,130,000.

Factory orders (chart)
fell 1.5% month-over-month (m/m) in June, versus expectations of a 1.9%
drop, while May's figure was adjusted lower to a 1.2% decrease. June durable goods orders—preliminarily
reported a week ago—were revised positively to a 3.9% drop from the
initial estimate of a 4.0% fall, and orders of nondefense capital goods excluding aircraft—a proxy for business spending—was revised higher to a 0.4% gain from the initially reported 0.2% increase.

Treasuries finished higher, with the yield on the 2-year note declining 3
basis points (bps) to 0.64%, while the yields on the 10-year note and
the 30-year bond dropped 4 bps to 1.50% and 2.26%, respectively. Bond
yields are seeing some pressure in the wake of the decision in the U.K.
to cut rates and add to its asset purchases, as well as ahead of
tomorrow's key July nonfarm payroll report that will follow last week's unchanged monetary policy stance from the Fed and severe miss in 2Q GDP growth (economic calendar). Headline job growth is projected at 180,000 jobs, while private sector payrolls are expected to rise 171,000. The unemployment rate is forecasted to dip to 4.8% from 4.9% and average hourly earnings are projected to rise 0.2% m/m.

In addition to the July labor report, investors will get a look at the trade balance,
with economists forecasting the deficit to have widened in June to
$43.0 billion from May's $41.1 billion, while in the final hour of
trading the consumer credit report is expected to show consumer
borrowing was $15.5 billion for the month of June, down from the $18.6
billion posted in May.

European equities finished higher, led by financials as Italian banking
concerns eased for a second-straight session, while the markets got a
boost from the monetary policy decision by the Bank of England (BoE), as
well as some upbeat earnings results. Oil & gas issues also
rebounded to help the markets as crude oil prices continued to recover
from a recent tumble to bear market territory. The BoE cut its benchmark
interest rate by 25 bps to 0.25%, as expected, but the British pound
fell versus the U.S. dollar after it also unexpectedly boosted its asset
purchase program to 435 billion pounds from 375 billion pounds. The
euro dipped versus the greenback, while bond yields in the region moved
lower. Amid the continued elevated global volatility that has been
amplified by economic growth uncertainty and divergent monetary policy
actions, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop,
CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification
and Schwab's Director of Market and Sector Analysis, Brad Sorensen,
CFA, provides an updated look at sectors, post-Brexit in the latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two. Read both articles at www.schwab.com/marketinsight and be sure to follow Schwab and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

Stocks in Asia finished mostly higher, aided by the rebound in crude oil
prices yesterday that helped U.S. markets gain ground, while traders
were likely cautious ahead of today's monetary policy decision in the
U.K. and tomorrow's key July U.S. labor report. Earnings and a modest
pullback in the yen from its recent rally that has come courtesy of
disappointment toward Japan's recently announced stimulus measures,
helping Japanese stocks to stage a rebound. Indian equities ticked
higher amid muted reaction to the passing in the upper house of
parliament of the nation's biggest tax reform in decades, per Bloomberg,
in the form of the goods-and-services tax bill. Schwab's Director of
International Research, Michelle Gibley, CFA, offers a look at the
global political landscape in her article, Performing Reformers: How Political Change Can Affect Stocks, at www.schwab.com/oninternational.
Meanwhile, Australian listings advanced, led by oil & gas issues,
South Korean securities gained modest ground, while those traded in
mainland China and Hong Kong nudged higher.

Tomorrow, the international economic calendar will be fairly light, with
reports scheduled for release to include the trade balance and the
Leading Index from Japan, manufacturing orders from Germany, and
industrial production from Italy.

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